Financial Companies Go Offshore
There is nothing new about offshore to banks, investment funds and other types of financial institution such as forex trading companies and insurance; most of them long ago set up offshore branches in order to service multinational corporations, to facilitate trade, and to provide investment management for high-net-worth individual customers.
Some offshore jurisidictions have developed as centres for particular types of offshore financial service: thus, there are hundreds of banks in the Caymans, and several thousand investment funds in Luxembourg, and British Virgin Islands (BVI).
In recent years, growing financial awareness has created strong demand for offshore financial services among a wider community of customers; this is especially true of offshore investment funds. Even so, offshore financial services have tended to remain the preserve of larger companies or of relatively wealthy and sophisticated individuals – transaction costs are high and information not always easy to come by.
The Internet has opened the way to a far broader market for the providers of offshore financial services, by reducing transaction costs and by making information about offshore available instantly to anyone who is interested, although national authorities have sought to constrain this to an extent, especially in the case of US investors. It is therefore highly unusual now not to see a warning of some kind on the websites of offshore online service providers to the effect that their material should not be viewed by residents of X, Y or Z countries. Whether said residents choose to heed those warnings, however, is beyond the control of the provider!
Offshore providers of financial services theoretically have strong competitive advantages, for example:
Profits are less highly-taxed, or untaxed, allowing cheaper products
Offshore jurisdictions are usually less highly regulated than high-tax countries, so that an offshore financial institution has more flexibility in planning, marketing and delivering products
Financial products themselves can take advantage of a low-tax environment in order to deliver greater returns to customers
The cost base of an offshore location is often more favourable than that of a high-tax location
The whole range of retail financial services can be provided from offshore using the Internet. Services and products can include:
Electronic banking including current and deposit account maintenance, paying bills, direct debits etc
Offer and sale of stocks and shares, investment and mutual fund units, equity derivatives etc
Foreign exchange services
Offer, sale and maintenance of savings products including pension schemes
Offer and sale of insurance products
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